On July 4, 2025, President Trump signed into law the One Big Beautiful Bill Act (OBBBA), marking a significant overhaul of the international tax landscape.
This legislation introduces several key changes aimed at refining existing frameworks and implementing new rules to better align with the global economic environment.
These provisions are set to take effect for taxable years beginning after December 31, 2025.
Foreign Tax Credits (FTCs)
- Increased Deemed Paid Credits: The Section 960 haircut has been reduced from 20% to 10%, increasing the available credits to 90%.
- Limited Sourcing Rule: Up to 50% of income from U.S.-produced inventory sold abroad through foreign branches can be treated as foreign-source income.
- No Change for Business Owners Abroad: The fundamental FTC system remains unchanged unless a Section 962 election is made.
Global Intangible Low-Taxed Income (GILTI)
- Renamed to Net CFC Tested Income (NCTI): The GILTI regime is now called Net CFC Tested Income (NCTI).
- Reduced Section 250 Deduction: The deduction is reduced to 40%, resulting in a higher effective U.S. tax rate of 12.6% on NCTI.
- Elimination of Deemed Tangible Income Return (DTIR): DTIR is removed from the calculation, simplifying the process.
Foreign-Derived Intangible Income (FDII)
- Renamed to Foreign-Derived Deduction Eligible Income (FDDEI): FDII is now called Foreign-Derived Deduction Eligible Income (FDDEI).
- Reduced Section 250 Deduction: The deduction is reduced to 33.34%, leading to an effective tax rate of 14% on FDDEI.
- Exclusions from Deduction Eligible Income (DEI): Clarifies and expands exclusions, including income from outbound transfers under Section 367(d) and gains from sales of depreciable property.
- Limited Deductions: Deductions for FDDEI calculations are limited to those directly related to qualifying income, excluding interest and R&E expenses.
- Elimination of Return on QBAI: The return on Qualified Business Asset Investment (QBAI) is eliminated for FDDEI calculations.
Base Erosion and Anti-Abuse Tax (BEAT)
- Permanent Rate: The BEAT rate is set at 10.5%.
- Preserved Credits: Credits against the BEAT include R&D credits, low-income housing credits, renewable electricity production credits, and Section 38 credits.
Controlled Foreign Corporation (CFC) Rules and Subpart F
- Downward Attribution Eliminated and Section 951B Introduced: Reinstates Section 958(b)(4) and introduces Section 951B to address policy concerns.
- Permanent Look-Through Rule: The Section 954(c)(6) look-through rule is made permanent.
- Modified Pro-Rata Share Allocation Rules: Income is allocated to U.S. shareholders owning CFC stock at any time during the tax year.
Proposed Section 899 ("Revenge Tax") – not included
- The proposed Section 899, which would have increased taxes on governments and residents of countries enacting "unfair foreign taxes," is not included in the final Act.
Other International Tax-Related Provisions
- Section 367(d) Transfers: Income from outbound transfers under Section 367(d) is excluded from deduction eligible income.
- Expense Apportionment: Limited to directly allocable deductions, excluding interest and R&E expenses.
